Florida’s Sinkhole Insurance Law Explained

Sinkhole insurance—coverage for structural damage or other noncatastrophic events—used to be mandatory for Floridians. In 2007 the Florida legislature changed that. Consumers were no longer required to buy sinkhole coverage.

They were instead required to buy “catastrophic ground cover collapse” coverage which insures against more serious—some would call them “catastrophic”—problems:

the abrupt collapse of the ground;

a depression in the ground cover clearly visible to the naked eye;

structural damage to the building including the foundation; and

the insured structure being condemned and ordered to be vacated by a government agency authorized by law to issue such an order.

More changes came in 2010. Insurers in two especially sinkhole-prone Florida counties, Pasco and Hernando, were allowed to drop sinkhole coverage. Not everyone is happy about that.

Lynne McChristian, Florida representative for the Insurance Information Institute, explained some of the background for these changes.

Lynne McChristian: It’s sinkholes doing it right now, related to aggressive marketing, aggressive attorneys, aggressive public adjustors, and people who are blaming sinkholes for any damage to a home.

Citizens Property Insurance Corporation, the statewide insurer, a week or so ago they had their rate increase hearing. They talked about how they paid out—and these numbers are not [precise, just for illustration]—they collected, let’s say, $90-some million in premiums during their last fiscal year and paid out $740-some million in claims. You do the math, $90-some million, paying out $744 million in claims. Largely due to sinkholes.

AG: It’s too expensive for the insurers to come in and prove it’s not sinkholes?

LM: First of all, they have to do the testing, which can cost $10,000-15,000. But if they actually have to repair damage, it can cost well over $100,000. Usually your policy takes care of structural damage, but in most policies it doesn’t provide for what happens underground. So that is something that you know is really driving up the claims cost.

The problem for insurers is it’s really hard to prove that the damage is from a sinkhole. It’s hard to investigate it; it’s hard to repair it. Just because you repair a sinkhole doesn’t mean you’re not going to get another one. That one is going to take hold, and you’re going to have another problem.

AG: Wasn’t it just a few years ago that consumers were given the option of not getting sinkhole insurance? If I understood the way that this has worked, a few year ago it was mandatory for consumers to get sinkhole insurance and insurers to sell it, then consumers were given the option of not buying sinkhole insurance, but now the insurers in two counties are given the option of not offering it just in a standard policy. Is that the way this is going?

LM: It kind of goes back and forth, as a way to help people to lower the cost. Give them more options. There’s other things done in Florida, [such as giving you] the option to remove your contents coverage, which I don’t think is typical in other states, as a way to give people the flexibility to look for ways to lower their costs.

One thing to remember is because there has been so much development and growth in Florida, that has led to more sinkholes because you’re building in vulnerable areas, and it has a tendency to mess with the water table.

AG: And would you say it’s been a success the way this has turned out so far, or would you say it’s not clear yet?

LM: I don’t have the data.

AG: So the people who are not happy with how this is turning out, would you say that it’s the usual tension between giving consumers more choice and making policy costs a little bit lower or a lot lower and being more comprehensive in covering everything? Is that the usual tension?

LM: I think it’s the usual tension.

AG: Do you know what the difference in price is? How much are the consumers who are not getting sinkhole insurance saving?

LM: Like everything else, the price of comprehensive sinkhole coverage depends on location. If you live in an area with known sinkhole activity, you can be paying $300-$400 a year for comprehensive coverage. If there has been little or no sinkhole activity in a given county, dropping the comprehensive sinkhole coverage for “catastrophic ground coverage collapse” might save you only a very few dollars.

Arin Greenwood(agreenwood@heartland.org)is editor of The Heartland Institute's Out of the Storm News, where this article first appeared. Used with permission.